Thursday, October 29, 2015

US On Road To Third World — Paul Craig Roberts

On January 6, 2004, Senator Charles Schumer and I
challenged the erroneous idea that jobs offshoring was free trade in a New York
Times op-ed. Our article so astounded economists that within a few days Schumer
and I were summoned to a Brookings Institution conference in Washington, DC, to
explain our heresy. In the nationally televised conference, I declared that the
consequence of jobs offshoring would be that the US would be a Third World
country in 20 years.

That was 11 years ago, and the US is on course to
descend to Third World status before the remaining 9 years of my prediction
have expired.

The evidence is everywhere. In September the US Bureau
of the Census released its report on US household income by quintile. Every
quintile, as well as the top 5%, has experienced a decline in real household
income since their peaks. The bottom quintile (lower 20 percent) has had a
17.1% decline in real income from the 1999 peak (from $14,092 to $11,676). The
4th quintine has had a 10.8% fall in real income since 2000 (from $34,863 to
$31,087). The middle quintile has had a 6.9% decline in real income since 2000
(from $58,058 to $54,041). The 2nd quintile has had a 2.8% fall in real income
since 2007 (from $90,331 to $87,834). The top quintile has had a decline in real
income since 2006 of 1.7% (from $197,466 to $194,053). The top 5% has
experienced a 4.8% reduction in real income since 2006 (from $349,215 to
$332,347). Only the top One Percent or less (mainly the 0.1%) has experienced
growth in income and wealth.

The Census Bureau uses official measures of inflation
to arrive at real income. These measures are understated. If more accurate
measures of inflation are used (such as those available from shadowstats.com),
the declines in real household income are larger and have been decling for a
longer period. Some measures show real median annual household income below
levels of the late 1960s and early 1970s.

Note that these declines have occurred during an
alleged six-year economic recovery from 2009 to the current time, and during a
period when the labor force was shrinking due to a sustained decline in the
labor force participation rate. On April 3, 2015 the US Bureau of Labor
Statistics announced that 93,175,000 Americans of working age are not in the
work force, a historical record. Normally, an economic recovery is marked by a
rise in the labor force participation rate. John Williams reports that when
discouraged workers are included among the measure of the unemployed, the US
unemployment rate is currently 23%, not the 5.2% reported figure.

In a recently released report, the Social Security
Administration provides annual income data on an individual basis. Are you
ready for this?

In 2014 38% of all American workers made less than
$20,000; 51% made less than $30,000; 63% made less than $40,000; and 72% made
less than $50,000.

The scarcity of jobs and the low pay are direct
consequences of jobs offshoring. Under pressure from “shareholder advocates”
(Wall Street) and large retailers, US manufacturing companies moved their
manufacturing abroad to countries where the rock bottom price of labor results
in a rise in corporate profits, executive “performance bonuses,” and stock
prices.

The departure of well-paid US manufacturing jobs was
soon followed by the departure of software engineering, IT, and other
professional service jobs.

Incompetent economic studies by careless economists,
such as Michael Porter at Harvard and Matthew Slaughter at Dartmouth, concluded
that the gift of vast numbers of US high productivity, high value-added jobs to
foreign countries was a great benefit to the US economy.

In articles and books I challenged this absurd
conclusion, and all of the economic evidence proves that I am correct. The
promised better jobs that the “New Economy” would create to replace the jobs
gifted to foreigners have never appeared. Instead, the economy creates
lowly-paid part-time jobs, such as waitresses, bartenders, retail clerks, and
ambulatory health care services, while full-time jobs with benefits continue to
shrink as a percentage of total jobs.

These part-time jobs do not provide enough income to
form a household. Consequently, as a Federal Reserve study reports,
“Nationally, nearly half of 25-year-olds lived with their parents in 2012-2013,
up from just over 25% in 1999.”

When half of 25-year olds cannot form households, the
market for houses and home furnishings collapses.

Finance is the only sector of the US economy that is
growing. The financial industry’s share of GDP has risen from less than 4% in
1960 to about 8% today. As Michael Hudson has shown, finance is not a
productive activity. It is a looting activity (Killing The Host).

Moreover, extraordinary financial concentration and
reckless risk and debt leverage have made the financial sector a grave threat
to the economy.

The absence of growth in real consumer income means
that there is no growth in aggregate demand to drive the economy. Consumer
indebtedness limits the ability of consumers to expand their spending with
credit. These spending limits on consumers mean that new investment has limited
appeal to businesses. The economy simply cannot go anywhere, except down as
businesses continue to lower their costs by substituting part-time jobs for
full-time jobs and by substituting foreign for domestic workers. Government at
every level is over-indebted, and quantitative easing has over-supplied the US
currency.

This is not the end of the story. When manufacturing
jobs depart, research, development, design, and innovation follow. An economy
that doesn’t make things does not innovate. The entire economy is lost, not
merely the supply chains.

The economic and social infrastructure is collapsing,
including the family itself, the rule of law, and the accountability of
government.

When college graduates can’t find employment because
their jobs have been offshored or given to foreigners on work visas, the demand
for college education declines. To become indebted only to find employment that
cannot service student loans becomes a bad economic decision.

We already have the situation where college and
university administrations spend 75% of the university’s budget on themselves,
hiring adjuncts to teach the classes for a few thousand dollars. The demand for
full time faculty with a career before them has collapsed. When the consequences
of putting short-term corporate profits before jobs for Americans fully hit,
the demand for university education will collapse and with it American science
and technology.

The collapse of the Soviet Union was the worst thing
that ever happened to the United States. The two main consequences of the
Soviet collapse have been devastating. One consequence was the rise of the
neoconservative hubris of US world hegemony, which has resulted in 14 years of
wars that have cost $6 trillion. The other consequence was a change of mind in
socialist India and communist China, large countries that responded to “the end
of history” by opening their vast under-utilized labor forces to Western
capital, which resulted in the American economic decline that this article
describes, leaving a struggling economy to bear the enormous war debt.

It is a reasonable conclusion that a
social-political-economic system so incompetently run already is a Third World
country.